Hemas Holdings PLC (HHL) and its subsidiaries achieved consolidated revenues of Rs.43.4Bn, year-on-year (YoY) growth of 14.3% for the twelve months ended March 31, 2017. During this period, operating profit reached Rs.4.8Bn and PAT Rs.3.8Bn, growth of 21.3% and 28.3% respectively. Overall, the Group has grown strongly over last year; however, a multitude of factors such as increasing VAT rates, the introduction of VAT at hospitals, new pharmaceutical pricing regulation, and increasing inflation have impacted profitability during the second half of the year. Despite this, we have seen limited signs of recovery during Q4, achieving revenue growth of 18.4% and PAT growth of 36.8% compared with the same period last year.

The Group’s home and personal care business delivered revenues of Rs.16.0Bn, a 12.0% increase over the previous financial year. Operating profits were Rs.2.1Bn, 17.3% YoY growth. During the year, we have further developed our consumer offerings by introducing our new Velvet bath and body range and relaunching our leading hair care brand Kumarika. We also commissioned a new soap plant at our Sri Lankan manufacturing facility. Local growth is predominantly driven by market share improvement in our personal care and personal wash portfolio. Further, relatively benign commodity prices during the first half of the year contributed towards the sector gross margin improvement. Investments were made in increased marketing activities in Bangladesh in order to extend the reach attained through our own distribution channels and to counter competition. Further, we entered the feminine hygiene category during January in Bangladesh.

Our healthcare sector registered a total revenue of Rs.18.8Bn, a growth of 16.7% for the full year. Operating profit and PAT grew at 15.9% and 17.3%, to achieve Rs.2.1Bn and Rs.1.4Bn respectively. During the last two quarters, our healthcare sector witnessed challenges arising from new pharmaceutical price regulation and the introduction of VAT on specified hospital services. Our pharmaceutical distribution operation recorded good volume growth over last year, however, we experienced depressed margins resulting from price controls. Our hospitals along with the laboratory network delivered solid growth over last year with its latest investments in bed expansion in Hemas Hospital Wattala and a range of new surgical specialties and medical equipment.  All three hospitals registered Q4 standalone positive profitability at the PAT level for the first time.

J. L. Morison recorded YoY topline growth of 6.7% and operating profit growth of 21.8% for the year ended March 31, 2017. Our Rx Pharma portfolio continued to do well benefiting from new product launches. We continue to focus on building our Rx and OTC portfolio and have exited from the agricultural supply operations which have been part of J. L. Morison’s prior to our acquisition of the business. As a result, underlying revenue for the FY 2016/17 excluding agricultural operations grew by 13.7% and EBIT by 28.0%. In support of its future growth and innovation, J.L. Morison announced plans to set up a new research and manufacturing facility located within the SLINTEC Nano technology park in Homagama at an estimated cost of USD 13.5Mn.

Our Leisure, Travel and Aviation (LTA) business recorded a total revenue of Rs.4.3Bn, reflecting 1.3% YoY growth for the twelve months ended March 31, 2017. Hotels sector performance stagnated with a topline of Rs.1.8Bn during the year 2016/17. Fall in segmental profitability during the year was compounded by losses at Anantara Peace Haven Tangalle Resort which is in its first full year of operations. During Q4, we unified ownership of all our leisure investment property, travel and aviation businesses outside Serendib Hotels, under one single entity, Leisure Asia, 100% owned by HHL. Despite the impact of the runway closure at Katunayake, our representation division did well to enhance their market share. During the year, our travel sector went live with their new ERP system designed to enhance our ability to respond to evolving traveler needs.

Hemas Logistics and Maritime recorded a topline growth of 103.4% over last year recording a topline of Rs.1.9Bn. This growth has been driven by our new maritime agency, Evergreen. The acquisition of this agency gives us a stronger position in the logistics and maritime space. During the year, the logistics arm of Hemas showed improved results, mainly driven by the 3PL operations. Hemas is further strengthening its presence in the logistics space by constructing a new state-of-the-art Logistics Park to consolidate warehousing, improve capacity and provide a range of new services to clients. This new investment is through a joint venture with GAC and our investment will be USD 5.2Mn.

Despite a challenging macroeconomic context and an unprecedented period of tax and regulatory change in private sector healthcare, our teams have worked well to deliver strong operating results in 2016/17. We enter 2017/18 with a number of new initiatives under development as we continue to pursue our vision of enriching the lives of all Hemas stakeholders.

Steven Enderby

Group Chief Executive Officer

Colombo

May 16, 2017